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Title: A theory of structural change that can fit the data

Author(s): Simon Alder, Timo Boppart and Andreas Müller

Publication Date: January 2019

Keyword(s): aggregation, Multi-sector growth model, non-homothetic preferences, Non-monotonic Engel curves, Relative price effects and structural change

Programme Area(s): Macroeconomics and Growth

Abstract: We study structural change in historical consumption expenditure of the United States, the United Kingdom, Canada and Australia over more than a century. To identify preference parameters from aggregate data, we characterize the most general class of preferences in a time-additive setting that admits aggregation of the intertemporal saving decision. We parametrize and estimate such intertemporally aggregable (IA) preferences and discuss their properties in a dynamic general equilibrium framework with sustained growth. Our preferences class is considerably more flexible than the Gorman form or PIGL/PIGLOG, giving rise to a good fit of the non-monotonic pattern of structural change.

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Bibliographic Reference

Alder, S, Boppart, T and Müller, A. 2019. 'A theory of structural change that can fit the data'. London, Centre for Economic Policy Research.